There'll be an intense focus on a few key measures to assess how embedded high inflation has become in the economy. Photo / Steven McNicholl
There'll be an intense focus on a few key measures to assess how embedded high inflation has become in the economy. Photo / Steven McNicholl
Economists will be looking for signs that underlying inflation is starting to ease when StatsNZ releases new Consumer Price Index data on Tuesday.
There is a broad consensus that topline inflation peaked in the September quarter as fuel prices eased.
After hitting a 30-year high of 7.3 per cent inthe year to June 30, most economists forecast inflation will have settled between 6.5 and 7 per cent.
But there will be an intense focus on core inflation measures (which exclude volatile food and energy prices) and domestic non-tradeable inflation, to assess how embedded high inflation has become in the economy.
"The bulk of the decline in headline inflation is expected to come from a sharp drop in petrol prices," ANZ senior economist Finn Robinson said.
"While that's absolutely welcome, the fact that there's unlikely to be any sign of a broad-based easing in underlying inflation pressures means monetary policymakers can take only limited comfort from the headline fall."
ANZ is forecasting that annual non-tradeable (ie domestic) inflation stayed high at 6.3 per cent, and that measures of core inflation remained strong, though they may have eased from recent highs.
"All up, next week's inflation report is unlikely to contain the evidence needed to convince the RBNZ that underlying inflation has turned the corner," Robinson said.
"Unless there's a step change in the outlook, we see the RBNZ on track to lift the OCR to a peak of 4.75 per cent in May 2023."
BNZ economists also see online inflation falling, with the underlying inflation trend looking less clear - forecasting it to land at 6.5 per cent.
One of the big variables in the data would be building costs, BNZ senior economist Craig Ebert said.
"It's oddly termed 'home ownership' in the CPI but is better described as the cost to consumers of knocking up a standard home (excluding the land price component)," he said.
"This has been on a tear, with its 4.5 per cent rise in [the second quarter] making for annual inflation of 18.3 per cent. Since the pandemic began, this home construction cost measure has enlarged 28 per cent."
With the housing market clearly coming off the boil this year, and residential construction activity looking as though it's facing the same prospect, the rate of price growth should be easing - in theory, at least.
The build of a new apartment development at 1 Saint Stephens Ave in Parnell. Photo / Jason Oxenham
"Not that we forecast this to occur soon and/or dramatically," Ebert said.
"We are picking a 4.1 per cent increase [for the third quarter], which would sustain its annual pace at a lofty 17.8 per cent."
There were also early signs of labour scarcity starting to abate, at least at the margin, Ebert said.
"There is still a long way to go on this, of course, before the supply-demand equation is balanced," he said.
"But given the lessened prevalence of Covid-19 infections, signs that the net loss of migrants is starting to edge into a net gain, along with the recent relaxations of visa requirements for migrant arrivals, there is reason to believe the intensity of the staffing shortages can gradually abate."
Kiwibank economists have forecast a 6.8 per cent topline CPI figure.
"The path for inflation may be downhill from here, but it's a long trek back to 2 per cent," economist Mary Jo Vergara said.
"Sure, the pressure on global supply chains has eased materially in recent months, and global shipping costs are falling. But so is the New Zealand dollar. And a weaker kiwi currency sets a roadblock for the descent in tradeable (imported) inflation."
It may mean it takes take longer than expected for imported inflation to normalise, she said.
Kiwibank has stuck with a forecast 4 per cent peak in the official cash rate.
“We believe the RBNZ is getting significant traction from its rate hikes to date. The forward-looking indicators are showing a significant slowdown in growth. Both business and consumer confidence has been hit hard, and the housing market is in full retreat,” Vergara said.
